TOKYO • Weak demand in China and growing global fallout from the United States-China trade war took a heavier toll on factories across much of Asia last month, business surveys showed yesterday.
Activity in China's vast manufacturing sector contracted for the third straight month, pointing to more strains on its major trading partners and raising questions over whether Beijing needs to do more to stabilise the slowing economy.
In many cases, business conditions were the worst Asian companies have faced since 2016, with demand weakening not only in China but also globally.
Japan's factory gauge fell at the sharpest pace in 2½ years as slumping orders prompted plants to cut production, while separate data from South Korea showed its exports plummeted.
"The weakening trend in Chinese import demand weighed heavily on exports across the rest of the region," said lead Asia economist Sian Fenner of Oxford Economics.
"We expect exports to remain under pressure," she said.
STILL EARLY DAYS
The upshot is that it is probably too soon to call the bottom of (China's) current economic cycle... Indeed, we expect growth to continue to come under pressure until the middle of this year.
MR JULIAN EVANS-PRITCHARD, senior China economist at Capital Economics.
In China, both private and official factory gauges showed activity levels remained mired near three-year lows, with a government reading on Thursday pointing to the weakest export orders since the global financial crisis.
Factories also continued to shed jobs, a trend Beijing is closely watching as it weighs more support measures.
While there was a marginal pick-up in domestic orders in China, analysts said it was too early to tell if it was due to growth-boosting measures recently announced by Beijing or seasonal distortions linked to the long Chinese New Year holidays.
"The upshot is that it is probably too soon to call the bottom of (China's) current economic cycle," senior China economist Julian Evans-Pritchard of Capital Economics wrote in a note after the survey.
"Indeed, we expect growth to continue to come under pressure until the middle of this year."
China watchers are looking to Premier Li Keqiang's work report to the annual meeting of Parliament next week for clues on further stimulus plans. He will set out the government's economic targets for the year on Tuesday.
Sources said Beijing will set a 2019 growth target of 6-6.5 per cent, down from around 6.5 per cent in 2018. China reported economic growth cooled to 6.6 per cent last year, its weakest pace since 1990, but some analysts believe actual activity is much weaker.
But for most of Asia, the parliamentary session may be overshadowed by headlines from US-China talks aimed at ending their trade war.
The United States will need to maintain the threat of tariffs on Chinese goods for years even if both countries strike a deal, President Donald Trump's chief trade negotiator told lawmakers on Wednesday.
That could point to further collateral damage for Asia's other export powerhouses Japan, South Korea and Taiwan.
In Japan, the Markit/Nikkei Manufacturing Purchasing Managers' Index (PMI) fell into contraction territory as both domestic and foreign orders slumped.
"We need to be mindful that uncertainty over the global economic outlook is heightening," Bank of Japan board member Hitoshi Suzuki said on Thursday, after data showed the biggest drop in industrial output in a year in January.
Readings from South Korea - the first economy in Asia to report trade data each month - were equally grim. Its exports contracted 11.1 per cent last month from a year earlier, their biggest drop in nearly three years, with shipments to major buyer China slumping 17.4 per cent.
Factory activity in Vietnam also slipped to the lowest level since March 2016. While output and new orders saw faster growth, an index on employment fell for the first time in almost three years.
India bucked the trend, with activity expanding at the fastest pace in over a year. The findings came a day after data showed Asia's third-largest economy grew much less than expected in the final quarter of last year.
As the trade war drags on, the fallout is extending beyond business sentiment and starting to hit corporate bottom lines.
AAC Technologies Holdings, a Hong Kong-listed acoustic component supplier to Apple, warned that it expected first-quarter net profit to fall as much as 75 per cent due to reduced orders.
Japanese electronic giant Panasonic cut its annual profit outlook last month as the trade war hurt demand for auto components and factory equipment.
"Demand for mechatronics, mostly motors, has plunged since November as our clients making equipment for smartphone factories cut their investment," Panasonic's chief financial officer Hirokazu Umeda said.